MBA Proposes Guaranteeing Warehouse LOCs

Staff members from the Mortgage Bankers Association have met with the Treasury Department and the Federal Reserve to propose using $30 billion to guarantee warehouse lines of credit, the MBA's NewsLink publication reports.

With many warehouse lending units ceasing operations in the last few years, the MBA says a lack of warehouse lines of credit could make things difficult for borrowers trying to refinance under the Obama administration's Making Home Affordable plan.

The MBA recommends a scenario in which warehouse lenders pay a guarantee fee, which would then go to investors of warehouse lines of credit. The organization says Freddie Mac, Fannie Mae or Federal Home Loan Banks could invest in bonds while providing funds on the warehouse line.

John Johnson, who heads the MBA's warehouse lending committee, says a $30 billion "backstop" would provide liquidity for the mortgage market, and he suggested that TALF funds could be used toward that end.

"This would make it a government-guaranteed security," he told NewsLink. "It would liquefy and bring new participants to the market and free up capital for the existing warehouse lender."